Last year, London, not surprisingly, accounted for just over 50 percent of all UK hotel transactions, according to Savills, but high prices in the capital and strong trading in the provinces may see that flip in favour of the regions in 2017.
Consider The Holiday Inn in Doncaster, which was recently sold by U.S.-based Marathon Asset Management for above the £6.5-million guide price to the owners of Westgate Healthcare, which is expanding into hotels.
2016 saw volumes transacted in London reach £2 billion, up on the 45.2-percent share of the market in 2015, according to Savills.
Commenting on the Doncaster deal, Julian Troup, head of hotels agency at Colliers International, said: “Considerable interest was expressed for the freehold sale of this hotel, which follows a pattern of increasing demand for UK provincial hotels, particularly for global branded stock.
“We are seeing an emerging trend of increased demand for quality provincial hotel opportunities from a diverse buyer set, including international investors, who have been attracted by weaker sterling and improving trading prospects."
Troup said the buyer pool ranges from private buyers attracted to the benefits of a lifestyle opportunity to corporate investors attracted to favourable returns and real estate alternatives.
The deal came as Colliers International reported that Chester, in northwest England, had reached the top of Colliers International’s latest UK Hotels Market Index, an analysis of 34 locations across the UK, ranked to determine the ‘hot spots’ for hotel development and acquisition across the country.
The city’s high position was attributed to good occupancy levels, an upward RevPAR trend and a low active pipeline.
Sold! Fragrance Group buys another UK hotel, The Imperial in Blackpool, for £12.8m, reports Savills pic.twitter.com/ekUZA6ldkK— Hotel Analyst (@hotelanalyst) January 30, 2017
London was the largest market and in terms of RevPAR was still the top-performing market. It also has the most active pipeline in terms of rooms expected to come to the market over the next two years at 13,499. However, the index punishes high land costs, high construction costs, sluggish hotel growth in recent years and a strong active pipeline. The index was weighted, with RevPAR more important than, for example, local economic growth.
“This demonstrates that London is not the only city that investors should be watching and offers a credible indication to influence their decision-making process,” said Marc Finney, head of hotels and resorts consulting for Colliers International. “What the report highlights is that markets such as Chester and York are places where you get good commercial traffic and also leisure, good seven-day trading. Global events—where something happens in China or in the U.S.—don’t seem to affect the provinces the same way that London is affected.
"The difficult aspect for us is finding willing sellers. There are plenty of willing buyers out there, but sellers are concerned that they will be stuck being unable to buy anything to replace what they have sold, at a good price. Any Brexit impact has now been priced in and any future currency falls are likely to benefit tourism further.”
Savills put the increased split transactions in London last year on the drop-off in portfolio sales in the regions compared to recent years. However, the strong performance in the provinces has encouraged some portfolios to come onto the market, including a chunk of Kew Green Hotels as well as Q Hotels. Sources close to us suggest that China’s HNA Group has been involved in the bidding for the former.
The UK may have voted out of Europe, but investors are voting in.
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.